Bitcoin - I Hardly Knew Ya

I first heard of Bitcoin when the Free Software Foundation announced they would start accepting it for donations. Before long another story about Bitcoin appeared in my news feeds. Then another. And another. Then the new currency got a black eye, and finally, the Electronic Frontier Foundation stopped accepting donations of it. You know something is on very shaky ground when a non-profit will no longer accept donations of it.

Bitcoin began life just two short years ago as what some may characterize as an experiment in a new currency. It was to be one that wasn't tied to any country currency and demonstrated the characteristics of rising or decreasing in value somewhat like a stock on an exchange. Perhaps the best advantage of using Bitcoin currency was the ability to conduct purchases anonymously.

That latter point was driven home in an article on Gawker.com highlighting how many Bitcoin users were using their anonymous currency to purchase illegal drugs and other outlawed commodities such as incandescent light bulbs. That eye-opening article lead to an increase in the exchange rate of Bitcoin units, but also brought it to the attention to some of the same lawmakers that outlawed the incandescent light bulbs. With legitimate concerns such as illegal drug and prostitution activity, these senators and key justice department figures are seeking to shut down the Silk Road, the anonymous site used to sell and purchase illegal goods, and investigate how to castrate Bitcoin. Bitcoin is used for numerous legal tranactions as well, much like Bittorrent, such as donations to non-profits or paying for IT services. Some think of it as an investment. This chart shows the rise and fall of Bitcoin exchange rates coinciding with the Gawker.com story and subsequent hack and theft of Bitcoin user account data.

On June 19 hackers broke into and stole the database of accounts from Mt. Gox where most of the Bitcoin activity originated. When the news broke, many Bitcoin holders dumped their "coins" and combined with the flood of stolen coins sent the exchange rate back down to almost nothing. Mt. Gox immediately locked their system down. Rollbacks are being implemented, and accounts are being restored. Mark Karpeles, a Mt. Gox spokesman, posted that exchange rates should also be back to approximately $17.50 when everything is back to normal.

Not just because of the hack into Mt. Gox but for several reasons, the Electronic Frontier Foundation decided to no longer accept Bitcoin donations to help fund their civil liberties group. Among the other issues cited stem from legalities of using the currency and trying to convert Bitcoins into real cash. The EFF also did not want to be construed as endorsing Bitcoin or Mt. Gox.

As of this writing, the Free Software Foundation is still accepting Bitcoin donations. Nevertheless, the future of Bitcoin is very uncertain. Even if folks can figure out where they might use this obscure currency, can get over their fear of volatility, and discover how to purchase or earn some Bitcoinage; those in power will surely find a way to destroy anything they don't understand or can't control and tax.

Bitcoin is a free market currency. Governments hate the free market. So far Bitcoin is not big enough to get their attention. Maybe it never will be, but if it ever is it will only be allowed to continue if transactions can be taxed.

One of the nicer moments in monetary history happened a few years ago when University of Miami invited Milton Friedman to speak at their conference on gold. I sorta think they wanted an imprimatur from On High for the dinosaur's walked with people theory of finance, that gold rules.

In fact what he said was that in an ideal world we would have pure fiat money, and that in this particular world about the best we could hope for -- really pushing it now -- might be honestly run government money.

Bitcoin looks like a good try toward the ideal. I very much hope it works, but won't stop believing in diversification.

If you view bitcoins as a stock then now should be the perfect time to invest in some bitcoin "currency" & wait for their value to rise. Assuming, that is, that bitcoin doesn't bite the dust, which I personally think unlikely unless retailers are pressured into refusing them by governments. Looks like I may be buying some bitcoins this month...

Bitcoin seems to be as close to a "free (as in liberty) & open" currency as you can currently get, and seems to embody some of the ethos of FOSS; it'll definitely be nice investing without handing my money over to grinning bankers. Its value is likely to rise as more hear about bitcoins, and if the Euro and/or US-Dollar crash (as many are predicting) its value is likely to soar.

If you dislike the banks stealing your money with sizeable interest and an eye-watering bailout to boot (and lets face it, who doesn't?):

Buy Silver/Gold
Buy Bitcoins
Use Building Societies instead of banks

PS @ the top post: if it is a scheme please post a link to support it. If there is any, I'd love to see it before buying any. After-all, there are a number of supporters of bitcoin -- such as financial pundit Max Keiser of Russia Today's "Keiser Report" -- who I'm sure would love to see it as much as me.

Yeah, the goverments will try and stamp bitcoin out, but at the end of the day they would have to censor the network traffic.

Bitcoin will only work if it is used like money, in other words if you have a bunch of money you dont leave it out for anyone to steal nor do you put it in a bank that will charge you fees until you have no money left.

Goverment backed currency is only portable when you deal with the banks, the banks are for the most part have acted like con artists with a scheme to defraud home-owners. Thats why bitcoin was created.

Its a shame that this is not the first article i have read that is not very complete. Another one or some linux site (maybe this one), did a review of xfce but showed the gnome user interface.

I, too have had problems with the banks here in america. In england, i had no problems whatsoever, however things when i was there had not reached the same apex as with the banks here. Every time i have had a account with a american banking institution, i have had problems, they usually happen when *get this* i have little money in the account. Then something happens, a hold on a debit charge or something and the fees rack up and before i know it i have a $200 debt with no way out. I know this from experience. So really, Its not over for bitcoin yet, the writer of this story is a canary in a coalmine. And the only way to bitcoin to succeed is for people with honorable intentions to use it. If u like paying for your bankers vacations, go use regular currency. I dont, i dont appreciate the way the banks in america have trashed my credit either. Accounts are being hacked everywhere btw, so the fact that a bitcoin based business was hacked means very little. The list of sites hacked lately is huge and includes sony, the cia, the arizona police department, eve online etc. Your story is incomplete and the saga of bitcoin is not yet finished

At least in the United States, purchase or transactions in excess of $10,000 MUST be reported to the Internal Revenue Service. So whether or not the actual serial numbers of the bills that are used are recorded, the transaction (and the real name of the person and their identification) itself must be reported (part of the money laundering laws). Now this might be below the threshold you were thinking of, but carried to the logical conclusion, there is a certain lack of standing as to whether or not a hypothetical car dealer might need to report a bitcoin transaction of similar value.

And that is really the current crux of the issue. There is no doubt in my mind that transactions in the bitcoin market are being conducted largely to circumvent the money laundering laws. The "bad guys" are always one step ahead. And while we would all like to assume there is good in everyone, there will be some form of regulation and legislation placed on this model. If for no other reason than to collect the taxes owed to the government of record where the transaction occurs.

I recently saw a Craigslist posting where someone was willing to accept Bitcoins for a car he was selling (in California, of course). I began considering the currency for contract work, assuming that if someone is willing to sell a car for Bitcoins, maybe it's coming around?? Maybe not.